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Does firm-level political risk affect cash holdings?

Author

Listed:
  • Shehub Bin Hasan

    (University of Warwick)

  • Md Samsul Alam

    (De Montfort University)

  • Sudharshan Reddy Paramati

    (University of Dundee)

  • Md Shahidul Islam

    (University of Suffolk)

Abstract

We investigate whether firm-level political risk affects corporate cash holdings. Taking a sample of 5424 US firms with 129,750 firm-quarter observations from 2002Q1 to 2021Q3, we find that cash holdings is higher for firms with greater exposure to firm-level political risk. The positive relationship between firm political risk and cash holdings is consistent for financial constraint and non-constraint firms, high and low growth firms, pro-cyclical and counter-cyclical and competitive industries. Further, our findings are consistent to alternative measures of firm-level political risk and cash holdings. In addition, our findings remain robust with different endogeneity tests: a natural experiment, an instrumental variable approach, and a propensity score matching. Overall, we present novel evidence on the determinants of corporate cash holdings.

Suggested Citation

  • Shehub Bin Hasan & Md Samsul Alam & Sudharshan Reddy Paramati & Md Shahidul Islam, 2022. "Does firm-level political risk affect cash holdings?," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 311-337, July.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:1:d:10.1007_s11156-022-01049-9
    DOI: 10.1007/s11156-022-01049-9
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    More about this item

    Keywords

    Firm-level political risk; Cash holdings; Financial constraints; Business cycle;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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